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Serving: WI
Dr. Mark Stephenson addressing audience
MILK PRICE RISING: Mark Stephenson, University of Wisconsin-Madison director of dairy policy analysis, says he is expecting an average milk price improvement of about $1.25 per cwt in 2019.

UW ag experts expect challenges to continue in 2019

Dairy farmers’ gross income dropped 7.1% last year.

Two University of Wisconsin agricultural economists who spoke at the annual Wisconsin Agricultural Outlook Forum on Jan. 29 in Madison expect 2019 to be another challenging year for the state’s farmers.

Paul Mitchell, UW-Madison ag economist and director of the Renk Agribusiness Institute, said dairy gross revenue fell 7.1% in 2018 compared to 2017. He said crop farmers are dealing with continued low prices, too.

Continued low prices for crops and milk are clearly taking a toll on Wisconsin farmers.

“2018 was another good production year for crop farmers, but not a good price year,” Mitchell said. “Government payments were up 18% in 2018, primarily for crops,” he noted. “Net farm income for Wisconsin farmers declined 6% from the previous year. 2019 will be another year of tight margins and income uncertainty.”

Mitchell also reported that Chapter 12 bankruptcy filings have been high on Wisconsin farms. “We had 47 filings between Oct. 1, 2017, and Sept. 30, 2018,” he said. “Wisconsin had the most Chapter 12 bankruptcies of any state in the nation.”

Dairy markets
Mark Stephenson, UW-Madison director of dairy policy analysis, said dairy farmers are entering the fifth year with farm milk prices in the $16 to $18 range, and “we can’t seem to break out of it. We really need to move into the $18 to $20 range before it feels like recovery.”

Since the early 2000s, Stephenson said milk prices have been closely linked to exports. “Anytime our exports have fallen off pace, our milk and dairy product production have overwhelmed our domestic markets,” he explained. “I don’t think that we will see significant milk price improvement until trade accounts for about 17% to 18% of exports. We are getting closer, but probably not through most of 2019.”

When exports are off trend, Stephenson said stocks begin to build, which push down on product prices and then on farm milk prices. 

“This certainly happened in 2009, but it also has happened over the last few years,” he said. “This hasn’t been as deep a price drop as in 2009, because these products have stayed home in a strong economy this time, but it has been much longer.”

Why has the low-price trough persisted? A $10 range is seen every year in the cash costs of milk production on Wisconsin dairy farms. As a result, Stephenson said:
• 20% of farms have cash-flowed right through the trough
• 30% have had to borrow more money
• 30% have had to restructure loans
• 20% are in trouble

This led to Wisconsin losing more than 7% of its dairy farms in 2018. According to Stephenson, a “normal” attrition rate is between 3% and 4%.

Stephenson noted another concern for dairy this year. “New Zealand milk production is strong, which is not helping the world milk supply,” he said.

But not all the news is bad for dairy farmers, Stephenson said. In the 1970s, the average person in the U.S. ate 13 pounds of cheese per year. In 2018, U.S. cheese consumption had climbed to 37 pounds per person.

Per capita milk product consumption in China is only 23 pounds per year, compared to the world average consumption of 111 pounds. In the U.S., dairy consumption has climbed to 640 pounds per person.

Other positive news includes:
• slowing U.S. and world milk production
• declining world stocks of dairy products
• relatively strong general U.S. economy
• lowest U.S. retail prices for dairy since 2012
• Mexico purchasing dairy products again
• Margin Protection Program for Dairy paying about $0.62 per cwt on average on the first 5 million pounds of historic production (at the $8 level)
• some enthusiasm for the new Dairy Revenue Protection product
• Dairy Margin Coverage Program looks promising — especially for dairies with 220 cows or less

Stephenson said milk prices will be going up in 2019.

“My price forecasts are for milk price improvements on through 2019 from our 2018 lows,” he said. “This is not for anything like 2014 levels, but it will probably feel a lot like 2017 prices did. I’m expecting an average price improvement of about $1.25 from 2018.”

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